Despite global economic turbulence, India’s economic growth in FY24 has demonstrated resilience, growing at the rate of 7.6% in FY24. This growth is driven by robust government spending on infrastructure, increasing private consumption and a domestic demand for premium products and services, according to the ‘Future of Retail’ report by Deloitte. Key sectors such as leisure travel, consumer durables, and health and wellness have been pivotal in sustaining this growth.
Consumers continue to be value-conscious, but there has been noticeable growth in the demand for premium products, driven by rising affluence.
"The premium segment really grew across the board in the two years post-Covid, especially in urban India, which saw a lot of economic progress on the back of the tech and digital wave that happened post-pandemic," says Anand Ramanathan, partner and consumer products and retail leader at Deloitte. This surge in premium spending spanned various sectors, including housing, automobiles, and home durables, creating a ripple effect throughout the economy.
While the current propensity to spend is not as high as it was last year, the festive quarter, which accounts for approximately 50% of annual sales, is anticipated to be strong, particularly in rural India. This shift indicates that while urban premium spending may have slowed, the demand from tier-two and tier-three cities is on the rise, helping to balance the overall economic landscape.
A decline in spending intentions has been observed since January 2023, with recovery around the festive shopping season. Discretionary spending intent witnessed a reduction of ~10% compared with non-discretionary expenditures, according to the report.
The leisure travel sector is another area that has seen significant growth, reflecting a broader trend where consumers prioritise experiences.
"Average hotel occupancy increased from ~66–68% in January 2024 to ~72–74% in February 2024, driven by business and personal travel. The revenue per available room indicated strong growth in Q4 for the hospitality sector, growing by 11.4%. This growth was complemented by a 13% estimated growth in domestic air passenger traffic for FY24," says the report.
“Travel and leisure really grew, but most of the innovation has happened in the premium side,” adds Ramanathan. This growth underscores the willingness of the next generation to save up for more significant, high-ticket experiences, thus fuelling the premium market.
It comes as no surprise that the rise of e-commerce has spread like wildfire across cities, making products across categories more accessible to a broader audience. "E-commerce opened up the market and made access available to a whole host of people who were otherwise deprived of great experiences in terms of product portfolio,” says Ramanathan. This democratisation has increased consumer expectations across all segments, further driving demand for premium offerings.
As per recent industry calculations, India will lead global retail e-commerce development between 2023 and 2027, with a compound annual growth rate of 14.1%.
Interestingly, health and wellness have emerged as critical sectors contributing to economic growth. “Health and nutrition are here to stay,” says Ramanathan, emphasising the heightened consumer focus on health-conscious products. This shift, he adds, has led to greater scrutiny and innovation within the sector, prompting companies to offer more health-centric products and services.
Future outlook
Looking ahead, the Indian market is poised for continued growth. FY24 has witnessed several overarching trends shaping consumer behaviour. While consumers remain value-conscious, there has been a noticeable increase in the demand for premium products, driven by rising affluence. Companies are swiftly adapting their strategies to align with these evolving consumer preferences, balancing the demand for both value and premium segments.
“Any category that has done well in the premium segment should look to innovate for the mass market," Ramanathan suggests, noting that this approach could drive growth in categories like travel goods and consumer durables.
"Good governance, consumer trust, and continuous innovation are essential for sustained growth,” he adds.
